The In's and Out's of an LLC

Scott, check out this tip I posted with links to a couple of informative sites.

Sorry that trade we were working towards that would answer your Qs didn't work out ... and I'm not an attorney (but you might want to chat with Will Wright, a Biznik) ... but I can tell you that if you are the only member of the LLC it makes it is a lot easier to set up--and generally cheaper, too.

Hi Scott,

It's really easy. You can do it all online. Check out the IRS and DOL websites. If I remember, they offer guidlines as to how to set it up. I checked out books from the library and found that is was easier online they walk you through it all. I work the same way you do, I'm very "show me how to do this" oriented.

I am a single member LLC. The accounting is the same as a sole proprietor.

Good Luck,

Mary :>)

check out a book I have found very helpful - How to Start a Business in Washington - spells everything out from LLC formation to employment law - with all the forms and specific instructions for Washington.

Hey Scott,

I know of a website called http://www.incfile.com which could be of help to you. It's a paid website though but you can find good stuff related to LLC...

-Anita CM

Stealth Lawyer tip #1

The most important part of your application is your operating agreement. That's the part you upload online. It's also generally the part you really need a lawyer's help to review.

Stealth Lawyer tip #2

Just because the computer doesn't catch your business name as being to close to another, doesn't mean the real human being at the Secretary of State's office won't turn your application back for having a name that's too similar to someone else's. That's bad if you are in a hurry to get up and running.

Stealth Lawyer tip #3

Document mills can really muck up both 1 and 2 above. Not a problem until you wind up in litigation and you needed the protection of the operating agreement or you create a chain reaction of delay and ill will.

Uh, Theresa, I think you mean Certificate of Formation--as far as what is uploaded upon application. And, I usually include the Consent to Appointment as Registered Agent, just so there's no gap about that.

And yes, if there's more than one member, the Operating Agreement is where you need to put your attention and get legal input/review.

And yes, indeed, there's no predicating who at the Secretary of State will be looking at your application and how they might respond.

Why LLC and not Sole Proprietorship?

Are you protecting yourself from getting sued?

When is LLC a must?

I'm interested to see what you guys think,

-Andrey

Actually, Some Girl, I did mean Operating Agreement and I'll tell you why . . . But first the disclaimer, the following post is for educational and marketing purposes only and should not be construed as legal advice. As with all legal questions, you should, consult with an attorney licensed in your jurisdiction to see how the law applies to the facts of your case.

Because I am a licensed Washington Lawyer, I understand that I have already filled out and completed the "Certificate of Formation" before I ever reach the button labeled "Certificate of Formation." I also understand that the button labeled "Certificate of Formation" is analogous to the line on the downloadable form that reads, "please attach any other provisions the LLC elects to include." Thus, if my client wishes to have his or her or its Limited Liability Company Agreement (generically known as Operating Agreement) on file with the state I upload it by using the button labeled "Certificate of Formation." I also know that it is optional and in some cases we may choose not to upload it, particularly if there are provisions we wish to keep private. From practical experience, I know that third parties such as lenders wll require a copy dirently from my clients so the decision to actually upload is largely a matter of client preference for safekeeping.

Because keeping costs reasonable and business processes simple are a priority for my clients, I usually do not record or execute a separate document entitled "Certificate of Formation" as that is merely an extra piece of paper that is generally not going to be accepted in lieu of the actual certificate the Secretary of State issues following the application process by third parties in this State. Thus, even though I know this document is routinely included in form kits, it's not something I use in my practice in most cases. Instead, we keep a record of the actual application with its included "certificate of formation" and the actual certificate the state sends once the application is approved. I may, or, may not, do a consent to serve as registered agent, that is dependent on the facts.

Under the provisions of the limited liability statute, the limited liability agreement takes precedent over the statute itself with the usual limitations. Thus there are several potential problems with using a "form" operating agreement without consulting a lawyer. First, the "form" may not be in accord with Washington State Law. Second, the "form'"may be simply a restatement of the statutory provisions already codified in the law and an opportunity to provide additional needed provisions and protections is lost. Finally, even with an otherwise correct form based solely on the statutory defaults, failure by the member(s) to understand the agreement (such as the protections from liability and the responsibilities to others) can lead to potential problems later.

As a Washington Lawyer who has dealt with the problems that arrive when companies and the principals of companies fail to follow their operating agreements or articles of incorporation, I would never, ever agree with you that a single member LLC can skip the process of reviewing the operating agreement with a competent, licensed attorney. I've seen too much heartache, stress and expense incurred by clients who tried to go it alone.

Theresa

Thanks Theresa for the expansion.

I really did NOT mean to imply that anyone can skip an attorney's advice here.

Only that especially! if there is more than one member, folks had best get high quality advice about their LLC set-up ... I am completely with you--all business folks ought to be consulting an attorney all along the way here--LLC, leases, employment agreements, contracts, and so on.

Sorry it sounded otherwise.

I like S corps. Bank of America Online Business Suite makes it easy to keep track of all the filings, etc...even payroll.

I have an LLC for my editing, indexing writing business. When I first obtained it three years ago, I learned that the LLC is offered by the state. Therefore, the rules for the LLC slightly differ state by state.

In Virginia, the application to obtain the LLC was a pice of cake. It was only one page, and all I had to do was complete it and mail it in. From then on, I pay $50 per year to renew my LLC.

April Michelle Davis

What do you folks think? Do people look at LLCs with more "respect" than they look at sole proprietorships? Like, does an LLC seem more "real", more credible than a sole proprietorship?

I'm talking just perception here, not law or actual business operations. I guess I am riffing on Scott's comment about possible benefits of an LLC over a sole proprietorship.

One of the reasons the State requires that LLC or Limited Liability Company be added to the end of the business name of a company that is an LLC is to put persons potentially dealing with the company that there are provisions that limit the entity's liability.

I've heard otherwise reasonable CPA's express the opinion that LLC's were created solely to expand the work of attorneys . . . .

The perception that you are more serious when your company operates as an LLC or a corporation is probably primarily founded in an assumption that if a business is a coporation or an LLC it's "licensed."

And, it's definitely better to present business ideas to "accredited investors" having done at least the simple due diligence of creating a business form that allows for incoming equity and a shield from liability for the equity holders.

Be sure to check your state's annual corporate filing fees. In New Jersey, I used to have an S-corp and the fee was $500 to file an annual report (even when I had only losses). With my new LLC, $75. As a solo business owner, the tax benefit was the same. But DO get advice from a CPA and an attorney. They're definitely worth it!

Scott, For federal tax purposes, the LLC is the same as a sole proprietorship. Others above mentioned they like S Corps. There can be some tax advantage with an S Corp. Further, you can just make an election that your LLC be taxed as an S Corp. There is an article on this subject on my website "Entity Choice (Saving Tax with S Corporations)" Just click my website below and go to Tax Accountant/CPA Library.

I'll cover the in's and out's of LLCs as well as other entity types ( S Corps, C Corps) at my workshop event this Friday Noon in Bellevue. Since it's almost Jan 1, many people may decide to make a change and reduce 2009 tax. See the Events Calendar.